SolarCity, SunEdison, First Solar Are Sky-High but That Could End Tomorrow

NEW YORK (TheStreet) -- U.S. solar stocks are on a roll. Over the last 52 weeks, shares in First Solar (FSLR) , the largest U.S.-based producer of solar systems, are up 90%. SunEdison (SUNE) , which makes silicon wafers for solar systems, are up 203%. Shares in SolarCity (SCTY) , which finances residential and small commercial systems, have more than doubled, up 112%. Shares in SunPower (SPWR) , which makes high-yielding photovoltaic systems, are up 80%.

But these gains could be given back over the next few months. Some of these stocks have already begun to stall or roll back to the down side. This doesn't mean renewable energy itself is "a gamble," as a recent story on German energy insists. Cost parity between fossil and renewable energy -- without incentives -- is coming to many areas, and low-cost energy is the name of the game.

But will U.S. companies win that game? And how should investors play it?

First let's look at First Solar. Its results are profoundly impacted by its ability to create and sell off utility-scaled solar projects. It booked sales of $950 million for the March quarter, but just $544 million for June. Profitability nearly disappeared, from $112 million in the March quarter down to $4.53 million for June.

First Solar uses cadmium telluride (CdTe) rather than silicon-based photovoltaics. It has driven the yield on such cells to as high as 21%. But CdTe is a mature technology. Efficiency gains are slowing. Cadmium is toxic and tellurium may be increasingly rare. First Solar's ability to compete on a cost-per-kilowatt basis with other solar technologies is subject to question.

Or consider SunEdison. Before changing its name to SunEdison, MEMC Electronic Materials (the first M stood for Monsanto (MON) , of which it was a business unit) traded for as low as $1.60 per share just over two years ago. It is not profitable and revenues are not growing. Its debt-to-assets ratio has been climbing steadily and operating cash flow is negative. TheStreet Ratings has it rated as a sell.

But there's hope for SunEdison in a solar plant operator purchased in 2009. It has a joint venture with Samsung (SSNLF) to open a solar materials plant in Korea, and it acquired cheaper production technology in 2010. The top line has also grown 50% between the June quarter of 2013 and this year. But where are the profits?

SolarCity's rise has two reasons behind it, Elon and Musk. Musk's cousins, Lyndon and Peter Rive, run the company. SolarCity announced recently it would buy Silevo, which makes high-yielding photovoltaic systems, and produce those systems at a plant near Buffalo, NY. It was Musk who took the questions, and the stock zoomed upward on the news.

Financially there is little to recommend SolarCity, despite Musk's allure from his Tesla (TSLA) venture. Revenues are up for SolarCity, but so are losses -- for the March quarter those losses were $75 million on revenue of under $64 million.

This is to be expected. SolarCity's business is financing homeowners' installations of solar power. As with a bank, money goes out fast and comes back slow. TheStreet also rates SolarCity as a sell.

Up next: SunPower.

Finally, SunPower. The company was on the ropes when Total (TOT) , a French oil company, bought a majority stake in 2011. Most of its panels go into large utility-scale projects, and the stock is up 0.24% Tuesday at noon on big orders from Verizon (VZ) and a Japanese power company.

But, again, where is the growth and where are the profits?

Sales are up just 13% from 2011, and last year's $96 million profit was its first in four years. Chinese competitors are pressing hard, so it has opened a plant there. Can it keep its technology secrets?

There are other risks. Chinese companies like Yingli Green (YGE) , which reported results this week, enjoy lower costs and a bigger home market. New technologies that integrate solar power collection into windows or use new materials like plastics could quickly scale and take the market.

So don't think you can just plunk some dollars on green and expect a return on solar. The trend may be simple, but the investment is not.

At the time of publication, the author held no positions in any of the stocks mentioned.

Follow @danablankenhorn

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


TheStreet Ratings team rates SOLARCITY CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate SOLARCITY CORP (SCTY) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk, weak operating cash flow and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Electrical Equipment industry. The net income has decreased by 20.8% when compared to the same quarter one year ago, dropping from -$39.46 million to -$47.65 million.
  • The debt-to-equity ratio of 1.48 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, SCTY maintains a poor quick ratio of 0.93, which illustrates the inability to avoid short-term cash problems.
  • Net operating cash flow has significantly decreased to -$36.49 million or 149.27% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • SOLARCITY CORP reported flat earnings per share in the most recent quarter. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, SOLARCITY CORP reported poor results of -$0.80 versus -$0.56 in the prior year. For the next year, the market is expecting a contraction of 406.3% in earnings (-$4.05 versus -$0.80).
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Electrical Equipment industry and the overall market, SOLARCITY CORP's return on equity significantly trails that of both the industry average and the S&P 500.

TheStreet Ratings team rates SOLARCITY CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate SOLARCITY CORP (SCTY) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk, weak operating cash flow and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Electrical Equipment industry. The net income has decreased by 20.8% when compared to the same quarter one year ago, dropping from -$39.46 million to -$47.65 million.
  • The debt-to-equity ratio of 1.48 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, SCTY maintains a poor quick ratio of 0.93, which illustrates the inability to avoid short-term cash problems.
  • Net operating cash flow has significantly decreased to -$36.49 million or 149.27% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • SOLARCITY CORP reported flat earnings per share in the most recent quarter. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, SOLARCITY CORP reported poor results of -$0.80 versus -$0.56 in the prior year. For the next year, the market is expecting a contraction of 406.3% in earnings (-$4.05 versus -$0.80).
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Electrical Equipment industry and the overall market, SOLARCITY CORP's return on equity significantly trails that of both the industry average and the S&P 500.

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